Tidbits Quotations
To Accompany the August 31, 2012 edition of Tidbits
Bob Jensen at Trinity Universit

Political Art of the Poison Pens --- http://news.usf.edu/article/templates/?a=4663&z=186
Thank you Jim Martin for the heads up.

Government Video --- http://www.youtube.com/watch_popup?v=5u03KAcEbEo

"Zero Percent of Blacks Back Romney," NBC-WSJ Poll, August 23, 2012 ---
Racism is very much alive in the United States.

Debate Assignment:  Should We Never Pay Down the National Deficit or Debt (even partly)?

The larger reality is that Medicare cannot and will not continue as it is, as the President used to admit. A sampler of his rhetoric from the town-hall summer of 2009: "Mark my words," he declared in Grand Junction, Colorado, "Medicare in about eight to nine years goes into the red. . . . It is going broke." He added in Portsmouth, New Hampshire, that "What is truly scary—what is truly risky—is if we do nothing" because Medicare is "unsustainable" and "running out of money." In Belgrade, Montana, he said the program must be reformed "to be there for the next generation, not just for this generation."What he rarely mentions is how he plans to fix Medicare under ObamaCare. First the government will do things like arbitrarily commanding providers to deliver the exact same benefits except for $716 billion less. When that doesn't work, as it surely won't, the feds will take control of the case-by-case decisions currently made between patients and doctors and substitute the judgment of technocrats. (See what's already happening in Massachusetts, "RomneyCare 2.0," August 6.)
"The Mediscare Boomerang," The Wall Street Journal, August 16, 2012 ---

Government Video --- http://www.youtube.com/watch_popup?v=5u03KAcEbEo

Texas Versus California
Afterburner with Bill Whittle: Going Out of Business!

Two  Ivy League Professors Slugging It Out in a Political Arena

Harvard History Professor Niall Ferguson --- http://en.wikipedia.org/wiki/Niall_Ferguson
Princeton Economics Professor Paul Krugman --- http://en.wikipedia.org/wiki/Paul_Krugman

"Kinds Of Wrong," by Paul Krugman, The New York Times, August 21, 2012 ---

Looking at the comments on my Niall Ferguson takedown (see Ezra Klein, Matthew O’Brien, James Fallows, and Noah Smith for more), I found my memory jogged about a point I’ve been meaning to make about the nature of error in economics.

It seems to me that when readers declare that some piece of economics commentary is “wrong”, they often confuse three different notions of wrongness, which are neither intellectually nor morally equivalent.

First, there’s the ordinary business of expressing a view about the economy that the reader disagrees with – e.g., “Krugman is wrong, because the government can’t create jobs”; or, if you prefer, “Casey Mulligan is wrong, because we’re suffering from demand problems, not supply problems.” Obviously it’s OK to say things like this, and sometimes the criticism is correct. (I’m not wrong, but Mulligan is!) But equally obviously, there’s nothing, er, wrong about being wrong in this sense: people will disagree, and that’s legitimate.

Second, and much less legitimate, is the kind of wrongness that involves making assertions that are logically or empirically indefensible. I’d put the Cochrane/Fama claims that government spending can’t increase demand as a matter of accounting in this category; this is a basic conceptual error, which goes beyond mere difference of opinion. And economists who are wrong in this sense should pay a professional price.

That said, I don’t think it’s realistic to expect the news media to be very effective at policing this kind of wrongness. If professors with impressive-sounding credentials spout nonsense, it’s asking too much of a newspaper or magazine serving the broader public to make the judgment that they actually have no idea what they’re talking about.

Matters are quite different when it comes to the third kind of wrongness: making or insinuating false claims about readily checkable facts. The case in point, of course, is Ferguson’s attempt to mislead readers into believing that the CBO had concluded that Obamacare increases the deficit. This was unethical on his part – but Newsweek is also at fault, because this is the sort of thing it could and should have refused to publish.

Now, I don’t expect a publication that responds to daily or weekly news to do New Yorker-style fact checking. But it should demand that anyone who writes for it document all of his or her factual assertions – and an editor should check that documentation to see that it actually matches what the writer says.

Continued in article

"Unethical Commentary, Newsweek Edition," by Paul Krugman, The New York Times, August 19, 2012 ---

There are multiple errors and misrepresentations in Niall Ferguson’s cover story in Newsweek I guess they don’t do fact-checking — but this is the one that jumped out at me. Ferguson says:

The president pledged that health-care reform would not add a cent to the deficit. But the CBO and the Joint Committee on Taxation now estimate that the insurance-coverage provisions of the ACA will have a net cost of close to $1.2 trillion over the 2012–22 period.

Readers are no doubt meant to interpret this as saying that CBO found that the Act will increase the deficit. But anyone who actually read, or even skimmed, the CBO report (pdf) knows that it found that the ACA would reduce, not increase, the deficit — because the insurance subsidies were fully paid for.

Now, people on the right like to argue that the CBO was wrong. But that’s not the argument Ferguson is making — he is deliberately misleading readers, conveying the impression that the CBO had actually rejected Obama’s claim that health reform is deficit-neutral, when in fact the opposite is true.

More than that: by its very nature, health reform that expands coverage requires that lower-income families receive subsidies to make coverage affordable. So of course reform comes with a positive number for subsidies — finding that this number is indeed positive says nothing at all about the impact on the deficit unless you ask whether and how the subsidies are paid for. Ferguson has to know this (unless he’s completely ignorant about the whole subject, which I guess has to be considered as a possibility). But he goes for the cheap shot anyway.

Continued in article

Jensen Comment
The CBO assumes that the requirement (just upheld by a Supreme Court decision) that all people in the United States have health insurance or otherwise will have health insurance premiums deducted from their tax refunds that will fund the added cost of covering current poor people needing subsidies for health insurance coverage. This is what Krugman means above when he assumes "the insurance subsidies are fully paid for." This is why the Affordable Health Care Act (ACA) tried to get states to raise the number of people receiving state subsidies for Medicaid. About half the states, however, are refusing to along with the expanded coverage under Medicaid. This means that more higher-end low income people will depend on the ACA "subsidies" instead of Medicaid coverage from federal and state Medicaid funding.

It seems to be a matter of semantics whether these tax return add-ons are a tax or not, but Krugman (probably rightfully) ignores this matter of semantics. But since about half the taxpayers in the U.S. pay no income taxes and over 90% of them are below the median in earnings it's not clear whether enough insurance premiums expected to be collected will really be collected. The CBO may have been planning on an economic recovery that perhaps will never materialize in this new era of global competition with Asia. The CBO expectations of lower unemployment may not materialize (currently there are nearly 13 million unemployed people not counting the many who've simply given up looking for work or received fraudulent Social Security lifetime disability awards). The required subsidies in reality may greatly exceed the added premiums "tax" collected. But nobody, including the CBO, knows what deficits will become.

Also it's not at all clear that the CBO correctly estimated health care claims given the double-digit inflation in the cost of medical services. This is the real Achilles Heel of the Affordable Health Care Act. The costs of actually providing the promised services in the future may greatly exceed expectations.

What may be more subject to dispute is how accurate the CBO is on estimating future costs of bringing on people who have prior conditions that prevent them from currently being able to obtain health care coverage. I'm definitely in favor of providing affordable coverage to these people with prior conditions. But I think the eventual coverage costs will exceed CBO estimates since many of them need high-cost organ transplants and other very expensive medical services.

Professor Krugman has a very loyal crowd of liberal followers who seldom disagree with his liberal politics.
The comment of NS
The New York Times, August 19, 2012 ---

I am very surprised by the hysterical reaction of many readers to Krugman's comment. The point of the argument is what the HBO report says. Does Ferguson lie about the HBO report in his Newsweek article? Either Ferguson or Krugman is correct. I would expect readers disagreeing with Krugman to provide quotations from the HBO report showing that he is wrong and that Ferguson is right.

Instead of that I see a lot of ideological delirium in too many of the comments.

NS, Paris, France


Comment of Laurie Wick
The New York Times, August 19, 2012 ---

I cancelled my subscription to Newsweek today. I do not need this kind of uninformed blather in my home. If I feel the need to read/hear totally unfactual, biased reporting, I can just turn on FOX news at any hour of the day or night. Which I will never do.

Laurie Wick

Jensen Comment
Actually, since Tina Brown became editor, Newsweek became a liberal feminist magazine. Niall Ferguson's column is only there for tokenism. The Ferguson cover story is most likely a desperate attempt to recover the millions of conservative subscribers who've defected since Tina Brown took over. One of the recent cover's of Newsweek accuses Candidate Romney of "being a Wimp." Are you sure you want to cancel Newsweek Laurie?

The Comment of J. Philip
The New York Times, August 19, 2012 ---

FTA: "health reform that expands coverage requires that lower-income families receive subsidies to make coverage affordable. "

And, exactly,. Mr. Krugman, where do you think those subsidies are gonna come from? You can continue to carry Obama's water that's what you get paid to do, but the rest of us know a TAX when we see one.

J. Phillip

Closing Jensen Comment
I wish the Democrats had rammed a national health care plan down our throats in that short window of time 2008-2010 when they controlled the entire executive and legislative branches of the federal government. Instead we ended up with a bastardized public-private ACA that pleases neither the left nor the right. I am inclined to believe that the ACA will always have insurance premiums falling way short of costs of delivering medical services. Whether or not this adds to the deficit is simply a matter of accounting gimmicks the familiar governmental accounting shell game ---

How serious will it be in 2017 when China's GDP surpasses that of the US?
"In Defense of Niall Ferguson," by David Frum, The Daily Beast, August 23, 2012 ---

A BRIC nation at the moment is a nation that has vast resources and virtually no entitlement obligations that drag down economic growth --- http://en.wikipedia.org/wiki/BRIC

In economics, BRIC (typically rendered as "the BRICs" or "the BRIC countries") is an acronym that refers to the fast-growing developing economies of Brazil, Russia, India, and China. The acronym was first coined and prominently used by Goldman Sachs in 2001. According to a paper published in 2005, Mexico and South Korea are the only other countries comparable to the BRICs, but their economies were excluded initially because they were considered already more developed. Goldman Sachs argued that, since they are developing rapidly, by 2050 the combined economies of the BRICs could eclipse the combined economies of the current richest countries of the world. The four countries, combined, currently account for more than a quarter of the world's land area and more than 40% of the world's population.

Brazil, Russia, India and China, (the BRICs) sometimes lumped together as BRIC to represent fast-growing developing economies, are selling off their U.S. Treasury Bond holdings. Russia announced earlier this month it will sell U.S. Treasury Bonds, while China and Brazil have announced plans to cut the amount of U.S. Treasury Bonds in their foreign currency reserves and buy bonds issued by the International Monetary Fund instead. The BRICs are also soliciting public support for a "super currency" capable of replacing what they see as the ailing U.S. dollar. The four countries account for 22 percent of the global economy, and their defection could deal a severe blow to the greenback. If the BRICs sell their U.S. Treasury Bond holdings, the price will drop and yields rise, and that could prompt the central banks of other countries to start selling their holdings to avoid losses too. A sell-off on a grand scale could trigger a collapse in the value of the dollar, ending the appeal of both dollars and bonds as safe-haven assets. The moves are a challenge to the power of the dollar in international financial markets. Goldman Sachs economist Alberto Ramos in an interview with Bloomberg News on Thursday said the decision by the BRICs to buy IMF bonds should not be seen simply as a desire to diversify their foreign currency portfolios but as a show of muscle.
"BRICs Launch Assault on Dollar's Global Status," The Chosun IIbo, June 14, 2009 ---

Their report, "Dreaming with BRICs: The Path to 2050," predicted that within 40 years, the economies of Brazil, Russia, India and China - the BRICs - would be larger than the US, Germany, Japan, Britain, France and Italy combined. China would overtake the US as the world's largest economy and India would be third, outpacing all other industrialised nations. 
"Out of the shadows," Sydney Morning Herald, February 5, 2005 --- http://www.smh.com.au/text/articles/2005/02/04/1107476799248.html 

The first economist, an early  Nobel Prize Winning economist, to raise the alarm of entitlements in my head was Milton Friedman.  He has written extensively about the lurking dangers of entitlements.  I highly recommend his fantastic "Free to Choose" series of PBS videos where his "Welfare of Entitlements" warning becomes his principle concern for the future of the Untied States 25 years ago --- http://www.ideachannel.com/FreeToChoose.htm 


Bob Jensen's threads on the ACA are at


"U.S. Firms Move Abroad to Cut Taxes:  Despite '04 Law, Companies Reincorporate Overseas, Saving Big Sums on Taxes," by John D. Mckinnon and Scott Thurm, The Wall Street Journal, August 28, 2012 ---

More big U.S. companies are reincorporating abroad despite a 2004 federal law that sought to curb the practice. One big reason: Taxes.

Companies cite various reasons for moving, including expanding their operations and their geographic reach. But tax bills remain a primary concern. A few cite worries that U.S. taxes will rise in the future, especially if Washington revamps the tax code next year to shrink the federal budget deficit.

"We want to be closer to where our clients are," says David Prosperi, a spokesman for risk manager Aon AON +0.19% plc, which relocated to the U.K. in April.

Aon has told analysts it expects to reduce its tax rate, which averaged 28% over the past five years, by five percentage points over time, which could boost profits by about $100 million annually.

Since 2009, at least 10 U.S. public companies have moved their incorporation address abroad or announced plans to do so, including six in the last year or so, according to a Wall Street Journal analysis of company filings and statements. That's up from just a handful from 2004 through 2008.

The companies that have moved recently include manufacturer Eaton Corp., ETN -0.37% oil firms Ensco International Inc. ESV -2.04% and Rowan Cos., RDC +0.47% as well as a spinoff of Sara Lee Corp. called D.E. Master Blenders 1753.

Eaton, a 101-year-old Cleveland-based maker of components and electrical equipment, announced in May that it would acquire Cooper Industries PLC, another electrical-equipment maker that had moved to Bermuda in 2002 and then to Ireland in 2009. It plans to maintain factories, offices and other operations in the U.S. while moving its place of incorporation—for now—to the office of an Irish law firm in downtown Dublin.

When Eaton announced the deal, it emphasized the synergies the two companies would generate. It also told analysts that the tax benefits would save the company about $160 million a year, beginning next year.

Eaton's chief executive, Alexander Cutler, has been a vocal critic of the corporate tax code. "We have too high a domestic rate and we have a thoroughly uncompetitive international tax regime," Mr. Cutler said on CNBC in January. "Let's not wait for the next presidential election" to change the rules.

The moves by Ensco and Rowan, which operate offshore oil rigs, show how one company's effort to lower its tax rate can spur other shifts.

In moving from Dallas to the U.K. in 2009, Ensco followed rivals such as Transocean Ltd., RIG -1.47% Noble Corp. and Weatherford International Ltd. WFT -2.10% that had relocated outside the U.S. The company said the move would help it achieve "a tax rate comparable to that of some of Ensco's global competitors."

In fact, Ensco's tax rate has declined. In the second quarter, the company said its "effective tax rate" was 10.5%, down from 19% in 2009. The savings: more than $100 million a year.

Around the time of Ensco's move, Rowan executives fielded questions from investors and analysts about their own tax rate. In February, Rowan answered the questions, announcing plans to move to the U.K. from Houston. "We're able to be competitive, with a low effective rate," says Suzanne Spera, the firm's director of investor relations.

Fear of such moves is what prompted Congress to pass the 2004 law, which was backed by Democrats and some Republicans and included exceptions that some firms and advisers have sought to exploit.

In June, the Internal Revenue Service tightened an exception that had allowed companies to move to countries in which they have substantial business activities. It will not prevent moves through a merger, such as Eaton's.

Lawmakers of both parties have said the U.S. corporate tax code needs a rewrite and they are aiming to try next year. One shared source of concern is the top corporate tax rate of 35%—the highest among developed economies. By comparison, Ireland's rate is 12.5%.

The Obama administration has proposed lowering the rate to 28%, while Republican rival Mitt Romney has proposed 25%.

Continued in article

Jensen Comment
Only one of the Big Four accounting firms (Deloitte) is headquartered in the United States. Accenture has a sham headquarters in Bermuda.

Median Income Households:  The Difference Between Personal Sacrifice Versus Voting for Government Sacrifice

"Stingy liberals," by Jeff Jacoby, Boston Globe, August 26, 2012 ---

There are 366 major metropolitan areas in the United States, and a comprehensive new study by the Chronicle of Philanthropy ranks them on the basis of generosity  — the percentage of income the median household in each city gives to charity. According to the Chronicle, the most generous city in America is Provo, Utah, where residents typically give away 13.9 percent of their discretionary income. Boston, by contrast, ranks No. 358: In New England’s leading city, the median household donates just 2.9 percent of its income to charity.

Provo’s generosity is typical for its region. Of the 10 most generous cities in America, according to the Chronicle’s calculations, six are in Utah and Idaho. Boston’s tight-fistedness is typical too: Of the 10 stingy cities at the bottom of the list, eight are in New England — including Springfield (No. 363) and Worcester (No. 364).

What’s the matter with Massachusetts? How can residents of the bluest state, whose political and cultural leaders make much of their compassion and frequently remind the affluent that we’re all in this together, be so lacking in personal generosity? And why would charitable giving be so outstanding in places as conservative as Utah and Idaho?

The question is built on a fallacy.

Liberals, popular stereotypes notwithstanding, are not more generous and compassionate than conservatives. To an outsider it might seem plausible that Americans whose political rhetoric emphasizes “fairness” and “social justice” would be more charitably inclined than those who stress economic liberty and individual autonomy. But reams of evidence contradict that presumption, as Syracuse University professor Arthur Brooks demonstrated in his landmark 2006 book, “Who Really Cares.”

However durable the myth, wrote Brooks (who now heads the American Enterprise Institute, a Washington think tank), there is no getting around the data. For years, academic research and national studies have confirmed that Americans who lean to the left politically tend to be much less charitable than those who tilt rightward. The Chronicle of Philanthropy’s new report is only the latest in a long series of studies corroborating that fact.

In 1996, for example, the General Social Survey asked a large sample of Americans whether “the government has a responsibility to reduce income inequality” — a key ideological litmus test. Thirty-three percent of respondents agreed; 43 percent disagreed. The two groups differed sharply in more than their politics. The conservatives — those who opposed government programs to reduce inequality — were significantly more likely to donate money to charity than the liberals. And among those who did donate, conservatives gave away, on average, four times as much money per year.

Though there is a strong link between religious belief and philanthropy, it wasn’t just churches the conservatives gave to. “They gave more to . . . health charities, education organizations, international aid groups, and human welfare agencies,” Brooks noted. They even gave more “to traditionally liberal causes, such as the environment and the arts.”

Continued in article



Ayn Rand --- http://en.wikipedia.org/wiki/Ayn_Rand

Once again the Chronicle of Higher Education panders to its snobbishly liberal readership
Right-wing think tanks can have Rand (even if she had little use for them). In the academy, she is a nonperson. Her theories are works of fiction. Her works of fiction are theories, and bad ones at that. Should the Republicans actually win in 2012, we might need to study her in the academic world. It would be for the same reason we sometimes need to study creationism.
See below

"The Ridiculous Rise of Ayn Rand," by Alan Wolfe, The Chronicle of Higher Education, August 19, 2012 ---

When the literary editor of The New Republic (note that William Buckley hated Ayn Rand such that this invitation to Alan Wolff was likely biased from get go) asked me to review two new books on Ayn Rand three years ago, I readily agreed. Rand, the Russian-born writer known for her take-no-prisoners defense of capitalism, was beginning to come back into vogue among conservatives, and I recalled hearing that there was a congressman from Wisconsin who was singing her praises and assigning her writings to his staff. I had had my own flirtation with Rand, when I was 18, and although it lasted less than a year, I could never forget a college classmate who kept extensive index cards ready so that he could quote her whenever he deemed the situation appropriate.

The two books were interesting, indeed fascinating. One, Goddess of the Market: Ayn Rand and the American Right, was written by Jennifer Burns, a historian at Stanford University. The other, Ayn Rand and the World She Made, came from the journalist Anne C. Heller. As good as the books were, however, I felt that to do justice to the essay, I would have to reread Rand’s own novels. That proved to be too much. One of the best things I have done for American politics in recent years was to turn down the review assignment. It went instead to Jonathan Chait, now at New York magazine, and I consider his masterly essay to be one of the outstanding pieces of political journalism of the past decade.

With Paul Ryan’s selection as vice-presidential candidate on the 2012 Republican ticket, Rand is back in the news. Chait continues to write about her. Burns came out with two essays about her contemporary relevance, one in The New York Times, the other in The New Republic. We now know that Ryan tempered his enthusiasm for Rand when he realized that her atheism might prove problematic for members of his party. It has become clear that Rand was pro-choice and, like any hater of government properly ought to be, a civil libertarian. She would be disgusted by the Republican Party’s spending on defense (let alone Ryan’s support, during the George W. Bush years, for the Medicare Part D prescription benefit and TARP).

Yet as much as I like it when intellectuals receive attention, I still find myself uninterested in Ayn Rand. I do not care what she would have thought of the current scene. That those who invoke her name treat her selectively is of almost no significance to me. I have the sense, moreover, that I am not alone, at least among those in the academic world. Despite a flutter of interest, she has been mostly ignored.

Rand wrote novels that are highly unlikely to be read and taught in departments of English. Her subject was the market, but no academic economists take her seriously, unless, of course, wealthy libertarians offer funds for that purpose. She considered herself an Aristotelian, but it is impossible to imagine departments of philosophy and political science adding her to the canon.

For those under Rand’s spell, all this is just more evidence of academe’s irrelevance. For me it demonstrates that, for all the attacks directed against it, American academic life still has standards. I will be teaching a course next semester called “Liberalism and Conservatism.” John Stuart Mill and Edmund Burke will be on the reading list. So will libertarians such as Friedrich von Hayek and the founder of the National Review, William F. Buckley Jr. Contemporary liberals such as E.J. Dionne will be there. But not Rand. My reasons for excluding her may be the same reasons that other academics ignore her.

Rand’s “thought,” such as it is, boils down to two propositions. One is that selfishness is the highest of moral virtues. The other is that the masses, above all resentful of success, are parasites living off the hard work of capitalists far superior to them in every way.

Self-interest is a useful concept, while selfishness is not. That, I believe, helps explain why Adam Smith is a first-rate thinker and Ayn Rand is an amateur.

Self-interest makes altruism possible: I can decide to help others, even if in doing so I may be set back financially, because other gains to my self-esteem are important to me. Self-interest requires a nuanced psychology, which is why economists now find themselves investigating all kinds of human behavior and are increasingly interested in how the mind works. Selfishness, by contrast, is not psychologically interesting; Rand’s understanding of human behavior has no room for the complex, the unexpected, or the paradoxical. It is one thing to say, as she frequently did, that altruism is evil; that is a normative position with which one might agree or, I hope, disagree. But to claim that altruism is impossible, an empirical question, is another matter entirely. Any social science, including economics, must be based on a realistic psychology. Rand does not offer one.

As for the masses, serious thinkers have shared Rand’s concern about their impact on society: de Tocqueville spoke of the tyranny of the majority and Ortega y Gasset of their “revolt.” There was a time when the concept of mass society was taken seriously in academic sociology: Daniel Bell wrote an essay about it, C. Wright Mills a chapter, and William Kornhauser a book. But while we continue to discuss mass media and mass culture, we have also learned, as Mills tried to teach us, that elites have flaws of their own. A theory of society that attributes virtues to one group and vices to another cannot pass the realism test: Rand’s “inverted” Marxism, as Chait calls it, is as myopic as its opposite.

Continued in article

Jensen Comment
Alan Wolff only hopes that Ayn Rand is a nonperson in the Academy, and if he's correct he's preaching from an ivory tower detached from the world of real people. If he's simply gone to Wikipedia, he would have found that she's not exactly a nonperson in the Academy. Thumbs down to Alan Wolff's new scholarship.


Ayn Rand --- http://en.wikipedia.org/wiki/Ayn_Rand

In his history of the libertarian movement, journalist Brian Doherty described her as "the most influential libertarian of the twentieth century to the public at large",and biographer Jennifer Burns referred to her as "the ultimate gateway drug to life on the right"

She faced intense opposition from William F. Buckley, Jr. and other contributors for the National Review magazine. They published numerous attacks in the 1950s and 1960s by Whittaker Chambers, Garry Wills, and M. Stanton Evans. Nevertheless, her influence among conservatives forced Buckley and other National Review contributors to reconsider how traditional notions of virtue and Christianity could be integrated with support for capitalism.

. . .

Academic reaction

During Rand's lifetime her work received little attention from academic scholars.[4] When the first academic book about Rand's philosophy appeared in 1971, its author declared writing about Rand "a treacherous undertaking" that could lead to "guilt by association" for taking her seriously.[175] A few articles about Rand's ideas appeared in academic journals before her death in 1982, many of them in The Personalist.[176] One of these was "On the Randian Argument" by libertarian philosopher Robert Nozick, who argued that her meta-ethical argument is unsound and fails to solve the is–ought problem posed by David Hume.[177] Some responses to Nozick by other academic philosophers were also published in The Personalist arguing that Nozick misstated Rand's case.[176] Academic consideration of Rand as a literary figure during her life was even more limited. Gladstein was unable to find any scholarly articles about Rand's novels when she began researching her in 1973, and only three such articles appeared during the rest of the 1970s.[178]

Since Rand's death, interest in her work has gradually increased.[179] Historian Jennifer Burns has identified "three overlapping waves" of scholarly interest in Rand, the most recent of which is "an explosion of scholarship" since the year 2000.[180] However, few universities currently include Rand or Objectivism as a philosophical specialty or research area, with many literature and philosophy departments dismissing her as a pop culture phenomenon rather than a subject for serious study.[181]

Academics Mimi Gladstein, Chris Sciabarra, Allan Gotthelf, Edwin A. Locke and Tara Smith have taught her work in academic institutions. Sciabarra co-edits the Journal of Ayn Rand Studies, a nonpartisan peer-reviewed journal dedicated to the study of Rand's philosophical and literary work.[182] In 1987 Gotthelf helped found the Ayn Rand Society, and has been active in sponsoring seminars about Rand and her ideas.[183] Smith has written several academic books and papers on Rand's ideas, including Ayn Rand's Normative Ethics: The Virtuous Egoist, a volume on Rand's ethical theory published by Cambridge University Press. Rand's ideas have also been made subjects of study at Clemson and Duke universities.[184] Scholars of English and American literature have largely ignored her work,[185] although attention to her literary work has increased since the 1990s.[186]

Some academic philosophers have criticized Rand for what they consider her lack of rigor and limited understanding of philosophical subject matter.[4][99] The Philosophical Lexicon, a satirical web site maintained by philosophers Daniel Dennett and Asbjørn Steglich-Petersen, defines a 'rand' as: "An angry tirade occasioned by mistaking philosophical disagreement for a personal attack and/or evidence of unspeakable moral corruption."[187] Chris Matthew Sciabarra has called into question the motives of some of Rand's critics because of the unusual hostility of their criticisms.[188] Sciabarra writes, "The left was infuriated by her anti-communist, pro-capitalist politics, whereas the right was disgusted with her atheism and civil libertarianism."[4]

Rand scholars Douglas Den Uyl and Douglas B. Rasmussen, while stressing the importance and originality of her thought, describe her style as "literary, hyperbolic and emotional".[189] Philosopher Jack Wheeler says that despite "the incessant bombast and continuous venting of Randian rage", Rand's ethics are "a most immense achievement, the study of which is vastly more fruitful than any other in contemporary thought."[190] In the Literary Encyclopedia entry for Rand written in 2001, John Lewis declared that "Rand wrote the most intellectually challenging fiction of her generation".[191] In a 1999 interview in the Chronicle of Higher Education, Rand scholar Chris Matthew Sciabarra commented, "I know they laugh at Rand", while forecasting a growth of interest in her work in the academic community.[192]

Philosopher Michael Huemer has argued that very few people find Rand's ideas convincing, especially her ethics,[193] which he believes is difficult to interpret and may lack logical coherence.[194] He attributes the attention she receives to her being a "compelling writer", especially as a novelist. Thus, Atlas Shrugged outsells not only the works of other philosophers of classical liberalism as Ludwig von Mises, Friedrich Hayek, or Frederic Bastiat, but also Rand's own non-fiction works.[193]

Philosopher Robert H. Bass has argued that her central ethical ideas are inconsistent and contradictory to her central political ideas

Corn Ethanol --- http://en.wikipedia.org/wiki/Corn_ethanol

"Ethanol vs. the World:  The corn fuel mandate is raising food prices and hurting the poor," The Wall Street Journal, August 10, 2012 ---

In 2007 and 2008, food prices spiked, resulting in much higher U.S. grocery bills and far more hunger in the poorest countries as the global supply chain buckled. The world may now be on the cusp of a 2012 reprise amid the drought in the Midwest farm belt, the worst in 50 years. Luckily, there are plenty of simple, modest things Washington can do to alleviate and even prevent another crisis.

The problem is that these fixes are opposed by a minor industry that adds little if any value to the economy, even counting its prodigious Beltway operations. Yup, the ethanol lobby strikes again. It can't succeed without a mandate that forces consumers to buy its product every time they fill up the tank, and if the resulting corn shortages drive food prices up in a way that punishes consumers around the world, so be it.

On Friday, the U.S. Agriculture Department downgraded its 2012 corn forecast by 13% from last year's crop, to 10.8 billion bushels. That would be the shortest harvest since 2006, even though the acreage planted with corn rose 4% since last year and is the highest since 1937. Scorching temperatures and little rainfall have left only 24% of the crop in good or excellent condition in the 18 major corn belt states, down from 72% in June. These represent the largest month-to-month potential declines in grain yields since the USDA started to keep records.

Also on Friday the USDA's world agricultural outlook board estimated that global corn consumption will be off by 38.9 million tons, with the U.S. problems responsible for three-fourths of the shortage. The gap is likely to presage climbing basic-food commodity prices. Corn futures are up nearly 50% over the last six weeks. The U.S. market is so important because the U.S. accounts for 60% of global exports, and corn feeds cows, pigs and chickens and is also a key ingredient in all kinds of foods.

Corn is also a key ingredient in the combine of political power and corporate welfare that is U.S. alternative energy policy. The food-to-fuel mandate is known as the Renewable Fuels Standard (RFS) and requires 13.2 billion gallons of ethanol to be blended into the gasoline supply this year and 36 billion gallons by 2022. These quotas are fulfilled almost entirely by corn ethanol. Four of every 10 bushels in 2011 went into the stuff. For the first time ever, more corn is devoted to the fuel than to livestock.

But not to worry, according to the ethanol lobby. On Friday the Renewable Fuels Association trade group put out a statement—apparently serious—claiming that there's no danger of an ethanol shortage and that "obligated parties under the RFS will have every opportunity to demonstrate compliance this year."

Even prior to the drought, a growing roll of world leaders was looking on aghast at such special pleading and politely suggesting that maybe the U.S. might do something to avert another wave of food price shocks. The latest is United Nations Food and Agriculture Organization director José Graziano da Silva, who on Friday called for "an immediate, temporary suspension of the mandate" to "give some respite to the market and allow more of the crop to be channelled towards food and feed uses." It must have been a busy day for the ethanol propagandists.

But then they're used to it. In 2010, the G-20 countries requested a consensus report from the various international agencies on how to better manage the risks of food price volatility after bread riots in two dozen countries from Brazil to Pakistan. The global bureaucracies—the WTO, FAO, IFAD, IMF, OECD, UNCTAD, WFP, IFPRI, UN HTLF and the World Bank—all signed on to recommendation six: "Remove provisions of current national policies that subsidize (or mandate) biofuels production or consumption."

America's Environmental Protection Agency has the power to do just that. The Renewable Fuels Standard builds in "safety valves" in the event of extreme economic harm in states or regions or if the ethanol industry does not produce an adequate supply. A coalition of meat and poultry producers has applied for such a waiver.

Our bet is that the EPA decides the drought doesn't qualify. Texas Governor Rick Perry applied for a waiver during the 2008 emergency—denied. President Obama could overrule EPA, but his willingness to do so would no doubt depend on how such a decision would affect his polling in Iowa and other ethanol states. He's already shamelessly playing up his support for wind-power subsidies in the Hawkeye State. ***

If not for the politics, the ethanol mandate would have been gone years ago. Oil costs and imports are up (ethanol makes up less than 1% of world-wide transportation fuel), and even the green lobby has turned against the fuel (because of the carbon-increasing deforestation it causes).

For more evidence, consider the ethanol waiver requested by the hunger charity ActionAid and the free-market Competitive Enterprise Institute. Normally when making decisions, the EPA considers "impacts on human health," a nebulous measurement that it usually inflates to justify costly regulation. But the ethanol rules mention health only to minimize the danger, despite numerous peer-reviewed studies showing that biofuel mandates increase hunger and hunger-related diseases at home and abroad and contribute to tens of thousands of annual deaths. The EPA still hasn't responded on the merits.

Natural disasters can't be controlled. Ethanol is a man-made disaster that could be stopped if the EPA or others in Washington cared for human health as much as they do power politics.

Jensen Comment
Even environmentalist Al Gore admits belatedly that his support for corn ethanol when he was running for President of the United States was entirely driven by the need for votes in the corn belt rather than his genuine opinion as to the costs versus benefits of corn ethanol.
"Report: Al Gore Reverses View on Ethanol, Blames Politics for Previous Support," ---

This is yet another example of where once a government program gets started it's almost impossible to reverse course because of the dependency it creates for jobs, return on investment in infrastructure, and commitments made by politicians to continue support come Hell or low water. Now we are burning up corn needlessly in our gasoline tanks that farm animals and people desperately need for food. But there's no changing course for this absurd government program.

Note that a better case can be made for sugar cane ethanol where the energy produced exceeds the energy consumed in the manufacture of sugar cane ethanol. But there are still cost inefficiencies of distribution since ethanol in any form does not ship well via pipelines.

Note that PwC does Romney's tax returns and most likely is his main source regarding global tax planning.
"In Superrich, Clues to What Might Be in Romney’s Returns," by James B. Steward, The New York Times, August 10. 2012 ---

On the face of it, Senator Harry Reid’s explosive but flimsily sourced claim that Mitt Romney paid no income tax seems preposterous. Mr. Romney has denied it, and without his returns no one can say for sure. But for someone who makes millions of dollars a year, would it even be possible?

Evidently it is.

It so happens that this summer the Internal Revenue Service released data from the 400 individual income tax returns reporting the highest adjusted gross income. This elite ultrarich group earned on average $202 million in 2009, the latest year available. And buried in the data is the startling disclosure that six of the 400 paid no federal income tax.

The I.R.S. has never before disclosed that last fact.

Not even Mr. Romney, with reported 2010 income of $21.7 million, qualifies for membership in this select group of 400. But the data provides a window into the financial lives and tax rates of the superrich. Since the I.R.S. doesn’t release data for the tiny percentage of Americans at Mr. Romney’s income level, the 400 are the closest proxy.

And that data demonstrates that many of the ultrarich can and do reduce their tax liability to very low levels, even zero. Besides the six who paid no federal income tax, the I.R.S. reported that 27 paid from zero to 10 percent of their adjusted gross incomes and another 89 paid between 10 and 15 percent, which is close to the 13.9 percent rate that Mr. Romney disclosed that he paid in 2010. (At the other end of the spectrum, 82 paid 30 to 35 percent. None paid more than 35 percent.) So more than a quarter of the people earning an average of over $200 million in 2009 paid less than 15 percent of their adjusted gross income in taxes.

How do they do it?

The data show that the ultrarich typically pay low tax rates every year, but 2009 was a special case. In 2008, people with large stock portfolios and other less liquid assets were disproportionately hit with large losses on paper. One of the oddities of the tax code is that capital gains taxes are discretionary, since they must be paid only when gains are realized. And they can be offset by losses. The silver lining in a bad year like 2008 for wealthy people is that they can “harvest” losses by selling assets, then use those losses to offset any gains. They can also carry forward the losses to offset gains in future years.

There’s ample evidence that happened in 2009 among the richest taxpayers. Their average income, $202 million, dropped from $270 million in 2008 and was the lowest since 2004. Like Mr. Romney in 2010, for the richest taxpayers most income comes from capital gains and other investment income. Their net capital gains (the data doesn’t include gross gains and losses) dropped by nearly 40 percent, from an average of $154 million in 2008 to $93 million in 2009, which accounts for nearly all of their drop in total income. Even with these lower gains, these 400 taxpayers, a minuscule fraction of the population at large, still managed to account for 16 percent of all capital gains. That is the highest percentage since the data was first released for 1992, when that percentage was less than 6 percent.

Tax experts I consulted said these results almost certainly reflected aggressive use of tax-loss carry-forwards from 2008, since the stock market bottomed in March 2009 and rallied strongly during the rest of the year.

The superrich also accounted for a disproportionate amount of dividend income, which averaged over $26 million for the top 400, or over 6 percent of total dividend income, also a record. Capital gains and dividends are both taxed at a maximum rate of 15 percent, as opposed to the maximum rate on earned income of 35 percent, which helps explain why so many of the superrich pay a relatively low rate. Still, that preferential rate doesn’t get them anywhere near zero, or even 10 percent.

Edward Kleinbard, professor of law at the Gould School of Law at the University of Southern California, explained it this way, “You start with income dominated by tax-preferred income — capital gains and qualified dividends. That gets you to 15 percent. Then you use charitable contributions of appreciated securities to reduce ordinary income. But the charitable contribution deduction is capped at 50 percent of adjusted gross income. Now you’re way down, but you’re not at zero.”

Continued in article

Jensen Comment
Note that in many instances what we call a "tax savings" is not a net savings. For example, when a taxpayer has millions of dollars invested in tax-exempt bonds of towns, cities, counties, states, and schools (the so-called muni-bonds), those government entities are getting a lower cost of capital (adjusted for financial risk) than if the federal government took away those tax-exempt options in tax reforms. For example, the cost of capital for municipalities would soar much higher if their bonds were suddenly to become taxable on federal tax returns and, thereby, had to compete with lower risk corporate bonds.

One could argue that it would be better for the government to eliminate tax exemptions for municipal bonds and then subsidize all of the towns, cities, counties, states, and school districts, but the trillions in subsidies required would clobber Federal deficits now over a trillion dollars. And shrewd high-income taxpayers would simply find other ways avoid taxation.

Even if Congress should enact a flat tax, I'm not in favor of eliminating tax exemption for bonds of towns, cities, counties, states, and school districts. That elimination would be too much of a shock to all the Main Streets of America.

Having said this, I think there are many things that need to be accomplished in major tax reforms for all levels of AGI.


Case Studies in Gaming the Income Tax Laws ---

"N.Y. Fed says municipal bond defaults higher than ratings agency counts," by Danielle Douglas, The Washington Post, August 15, 2012 --- Click Here

Defaults on municipal bonds for decades have been far higher than reported by rating agencies, bringing into question the true risk of a common investment widely considered to be safe, according to a study released Wednesday by the Federal Reserve Bank of New York.

Economists at the agency counted 2,521 muni bond defaults since 1970, whereas ratings agency Moody’s Investors Service, for instance, reported 71.

Muni bonds often act as an investment haven for ordinary Americans, and the new findings reveal they may be more risky than previously thought. That has been the subject of debate among lawmakers and others in the wake of a series of bankruptcy filings in California and elsewhere, as well as the collapse of several municipal projects.

Supporters of muni bonds say that despite a few high-profile cases, government securities rarely default. Data from the New York Fed, however, suggests otherwise.

Ratings agencies only track the behavior of the bonds they rate, presenting a fragmented picture of the entire muni bond universe. For a more comprehensive look, the New York Fed merged defaults tracked by the three major rating agencies with unrated bonds reported by Mergent and S&P Capital IQ.

Researchers found no pattern of spikes in defaults during recessions, rather defaults appeared to be a “function of idiosyncratic factors associated with individual projects,” according to the study.

Muni bonds are a primary way states, towns and even hospitals and ballparks finance projects. They have become popular partly because holders of these bonds don’t have to pay state taxes on any gains. Individual investors, according to the Securities and Exchange Commission, hold 75 percent of the outstanding bonds in the $3.7 trillion muni market through mutual funds and exchange-traded funds.

General-obligation bonds, issued by municipalities, rarely fail because they are backed by tax revenue. But the Fed found bonds that finance hospitals, stadiums and nursing homes default at much higher rates because they have a narrower income stream. A sports stadium, for instance, needs to sell tickets, otherwise it may not generate enough to meet its debt obligations.

The worst-performing bonds were “industrial development” bonds that finance projects such as alternative energy plants or pollution control facilities. These bonds, which comprise nearly two-thirds of municipal issuance, fail at a 28 percent rate.

Some analysts contend that the study is overstating the number of defaults since these debts are repaid by corporations rather than cities or towns.

“There’s an apples-and-oranges comparison that makes it hard to take their findings and draw any inference into the broader risks in the muni market,” said Bart Mosley, co-president Trident Municipal Research, which tracks the bond market.

Continued in article

Bob Jensen's threads on the slow recovery of the economy are at

How many times can GM get away with screwing shareholders?
"General Motors Is Headed For Bankruptcy -- Again," by Louis Goodhill, Forbes, August 15, 2012 ---

. . .

Right now, the federal government owns 500,000,000 shares of GM, or about 26% of the company. It would need to get about $53.00/share for these to break even on the bailout, but the stock closed at only $20.21/share on Tuesday. This left the government holding $10.1 billion worth of stock, and sitting on an unrealized loss of $16.4 billion.

Right now, the government’s GM stock is worth about 39% less than it was on November 17, 2010, when the company went public at $33.00/share. However, during the intervening time, the Dow Jones Industrial Average has risen by almost 20%, so GM shares have lost 49% of their value relative to the Dow.

It’s doubtful that the Obama administration would attempt to sell off the government’s massive position in GM while the stock price is falling. It would be too embarrassing politically. Accordingly, if GM shares continue to decline, it is likely that Obama would ride the stock down to zero.

GM is unlikely to hit the wall before the election, but, given current trends, the company could easily do so again before the end of a second Obama term.

In the 1960s, GM averaged a 48.3% share of the U.S. car and truck market. For the first 7 months of 2012, their market share was 18.0%, down from 20.0% for the same period in 2011. With a loss of market share comes a loss of relative cost-competitiveness. There is only so much market share that GM can lose before it would no longer have the resources to attempt to recover.

To help understand why GM keeps losing market share, let’s look at the saga of the Chevy Malibu.

The Malibu is GM’s entry in the automobile market’s “D-Segment”. The D-Segment comprises mid-size, popularly priced, family sedans, like the Toyota Camry and the Honda Accord. The D-Segment accounted for 14.7% of the total U.S. vehicle market in 2011, and 21.3% during the first 7 months of 2012.

Because the D-Segment is the highest volume single vehicle class in the U.S., and the U.S. is GM’s home market, it is difficult to imagine how GM could survive long term unless it can profitably develop, manufacture, and market a vehicle that can hold its own in the D-Segment. This is true not only because of the revenue potential of the D-Segment, but also because of what an also-ran Malibu would say about GM’s ability to execute at this time in its history.

GM is in the process of introducing a totally redesigned 2013 Chevy Malibu. It will compete in the D-Segment with, among others, the following: the Ford Fusion (totally redesigned for 2013); the Honda Accord (totally redesigned for 2013); the Hyundai Sonata (totally redesigned for 2011); the Nissan Altima (totally redesigned for 2013); the Toyota Camry (refreshed for 2013); and the Volkswagen Passat (totally redesigned for 2012).

Automobile technology is progressing so fast that the best vehicle in a given segment is usually just the newest design in that segment. Accordingly, if a car company comes out with a new, completely redesigned vehicle, it had better be superior to the older models being offered by its competitors. If it is not, the company will spend the next five years (the usual time between major redesigns in this segment) losing market share and/or offering costly “incentives” to “move the metal”.

Continued in article

Was Milton Friedman more progressive than Barach Obama and Paul Krugman?
"Milton Friedman -- Student Aid Progressive?" by Alex Holt. Inside Higher Ed, August 17, 2012 ---

July 31 marked the 100th anniversary of the birth of the late economist Milton Friedman. As a champion of school vouchers and other well-known conservative ideas, Friedman is far more heralded on the right than the left. But Friedman is also widely cited as the father of one idea that many progressives love: income-contingent student loans, in which borrowers pay a certain percentage of their income and loans are often forgiven after a certain time.

There’s just one problem: Friedman didn’t propose income-contingent loans. In fact, his student financial aid ideas were more radical and progressive than the loan policies supported by Democrats today, and he probably wouldn't have liked how his ideas have been put into practice so far.

Supporters of income-contingent loans have long cited Friedman as their intellectual patriarch. A 1988 New York Times article claims that the key concept of Michael Dukakis’s student loan reform proposal was the income-contingent loan, “first proposed by Milton Friedman, guru to a generation of conservative economists.” That claim has been popping up ever since.

Friedman’s actual proposal was something closer to an equity investment: think stocks, not loans. Under his plan, the government would provide students with financial assistance to pay for college and, in return, the students would pay a percentage of their income back to the government each year regardless of the amount of money initially provided to them. In other words, income-contingent loans socialize losses and privatize gains. Friedman’s plan socializes losses and gains. Let’s walk through what that means:

When the government issues a loan, it is agreeing with the borrower that it will get back the principal plus interest, no more, no less. Once the borrower repays what the government initially lent her, plus interest, she’s free of the debt.

However, under our current income-contingent loan system borrowers who are consistently low-income will not pay back the full amount of their loan, meaning that taxpayers will bear the cost of that loan (socialized loss), whereas high-income borrowers will pay back the loan and then continue to personally reap the dividends of the initial loan (privatized gain).

Friedman’s plan isn’t a loan at all. It’s an investment, in the true sense of the word. Under an equity investment arrangement, a student who realizes a big return on her education investment shares it with taxpayers by repaying more than was originally invested in her (socialized gain), but if she never earns much, she won’t even pay a fraction of what taxpayers originally invested in her (socialized loss).

Yet despite the seeming fairness of the equity investment approach to funding higher education, it turns out that individuals hate paying more when their lives turn out well, especially when they feel like they are subsidizing the perceived failure of others. When Yale University tried something similar to Friedman’s proposal in the 1970s, the most prosperous students complained that they paid a lot more than others.

“The only significant way the program seems really to have gone awry is in misjudging the gratitude of those who would benefit from it,” wrote Timothy Noah in response to a Wall Street Journal piece about the program ending.

“Twenty to 30 years on, the richer ones are bitching about how much they've had to pay. ‘[E]asily the worst financial decision I ever made,’ gripes David Bettis, a physician in Boise.… An e-mail support group for self-made Yalie plutocrats who now regret opting into the repayment scheme was started by Juan Leon, ‘who now sells Gulfstream jets in Latin America.’ "

In the end, the program ended prematurely, and Yale ate the outstanding costs. It’s worth noting that the program varied from Friedman’s plan in a significant way. An entire cohort of a class was invested in, and the cohort would pay a percentage each year until that cohorts’ loan was paid off. Those Yale students were complaining because 30 years on, they were still subsidizing the perceived deadbeats of their class, and that wasn’t fair. By tying investment to a group of borrowers, the Yale program was seen as a socialist dream gone awry, instead of a return on investment per individual.

The Yale program demonstrates that people do not like it when they feel they are subsidizing others for their success. So it is essential, if Friedman’s plan were to ever be implemented, that the investment in an individual was not tied to any other, and the terms of the investment were fixed. For example, no matter how much you earn, you will pay a certain percent of your income for twenty years, no more, no less. The percentage would, ideally, be calculated so that the program paid for itself, but it’s important that the terms of the investment don’t change. 

Continued in article

Bob Jensen's threads on Admissions and Financial Aid Controversies ---

From the TaxProf Blog on August 17, 2012 ---

ExxonMobil Paid $1 Trillion in Taxes Since 1999, Three Times Its Profits




Paul Ryan on the Affordable Health Care Act --- http://www.youtube.com/watch?v=zPxMZ1WdINs

The larger reality is that Medicare cannot and will not continue as it is, as the President used to admit. A sampler of his rhetoric from the town-hall summer of 2009: "Mark my words," he declared in Grand Junction, Colorado, "Medicare in about eight to nine years goes into the red. . . . It is going broke." He added in Portsmouth, New Hampshire, that "What is truly scary—what is truly risky—is if we do nothing" because Medicare is "unsustainable" and "running out of money." In Belgrade, Montana, he said the program must be reformed "to be there for the next generation, not just for this generation."What he rarely mentions is how he plans to fix Medicare under ObamaCare. First the government will do things like arbitrarily commanding providers to deliver the exact same benefits except for $716 billion less. When that doesn't work, as it surely won't, the feds will take control of the case-by-case decisions currently made between patients and doctors and substitute the judgment of technocrats. (See what's already happening in Massachusetts, "RomneyCare 2.0," August 6.)
"The Mediscare Boomerang," The Wall Street Journal, August 16, 2012 ---

Government Video --- http://www.youtube.com/watch_popup?v=5u03KAcEbEo

"TOP TEN MYTHS OF MEDICARE," by Richard L. Kaplan, The Elder Law Journal, Vol. 20, No.1, 2012 --- 

In the context of changing demographics, the increasing cost of health care services, and continuing federal budgetary pressures, Medicare has become one of the most controversial federal programs. To facilitate an informed debate about the future of this important public initiative, this article examines and debunks the following ten myths surrounding Medicare: (1) there is one Medicare program, (2) Medicare is going bankrupt, (3) Medicare is government health care, (4) Medicare covers all medical cost for its beneficiaries, (5) Medicare pays for long-term care expenses, (6) the program is immune to budgetary reduction, (7) it wastes much of its money on futile care, (8) Medicare is less efficient than private health insurance, (9) Medicare is not means-tested, and (10) increased longevity will sink Medicare.

Jensen Comment
I don't agree with every conclusion in this paper, but it is one of the best summaries of Medicare that I can recommend.

Waste, Fraud, and Abuse:  The gap between payments and payees in Medicare makes it a criminal's piñata

It should be emphasized at the outset that this contention is not about the ever-present specter of “waste, fraud, and abuse” that haunts governmental programs generally. That Medicare is targeted by scammers and schemers of all sorts is both indisputable and hardly surprising. As the famed bank robber, Willie Sutton, reportedly replied when asked why he robbed banks: “That’s where the money is.”101 Indeed, Medicare is where the money is—specifically $509 billion in fiscal year 2010 alone.102 Any program that pays out this amount of money to a wide variety of service providers in literally every county in America will be very difficult to police. That reality notwithstanding, such violations of the public trust as are encapsulated in the phrase “waste, fraud, and abuse” should be ferreted out whenever possible and eliminated. No one excuses these leakages, just as no one has a sure-fire solution to stem them once and for all.
Kaplan, Page 19

One thing to think about is why Medicare may be losing hundreds of billions of dollars relative to the national health care plans of Canada, Europe, etc. The obvious thing to pick on is that Medicare is a third party payment system where medical services, medications, equipment such as battery-powered scooters and home hospital beds, and medical care centers are not directly managed by the government. This opens the door to millions of fraudulent claims, often by extremely clever criminals, unscrupulous physicians, etc. The gap between payments and payees in Medicare makes it more vulnerable to abuse and waste.

This and other articles make a big deal about how administrative costs of Medicare are significantly less that the administrative costs of private insurance carriers like Blue Cross. However, what this article and related articles almost always fail to mention is that the major component of administrative cost to companies like Blue Cross lies in operating controls to prevent waste, fraud, and abuse.

National plans like those in Canada have both lower administrative costs and less waste, fraud, and abuse because the government provides most of the services directly without the moral hazards that arise from the gap between funding and delivery of services. Personally, I favor national plans. Of course, in some nations like Germany  there are premium alternatives where people that can afford it can pay for premium services not covered in the national plans.


Futile Care Waste:  My former University of Maine colleague was given thirty days to live (because of Stage Four bone cancer) received two new hips but never walked again and died in less than two weeks

But the issue of “futile care” is very different from “waste, fraud, and abuse.” The claim that Medicare should not pay for pointless medical interventions presumes that funds were indeed spent on actual medical procedures. The issue is whether those procedures should not have been done for reasons of inefficacy or insufficient “bang for the buck.” It is certainly true that Medicare spends a disproportionate amount of its budget on treatments in the final months of its beneficiaries’ lives. Some twenty-eight percent of the entire Medicare budget is spent on medical care in enrollees’ final year of life,103 and nearly forty percent of that amount is spent during a patient’s last month. The critical issue, of course, is whether these expenditures are pointless.

In one respect, it is not surprising that the cost of a person’s final medical episode is unusually expensive. That person’s presenting condition must have been especially severe because he or she did in fact die during or shortly after treatment. Moreover, when circumstances are particularly bleak, more intensive and often much more expensive procedures, tests, and interventions seem appropriate. After all, the patient was literally fighting off death at that point, so medical personnel try everything in their armamentarium to win what was ultimately the patient’s final battle. Only after the fact does one know that the battle in question was indeed the patient’s last episode. Does that mean that the effort expended, and the attendant costs, were wasted?

This question is more difficult than some might suspect. A recent study of Medicare claims data examined the association between inpatient spending and the likelihood of death within thirty days of a patient’s being admitted to a hospital.It found that for most of the medical conditions examined, including surgery, congestive heart failure, stroke, and gastrointestinal bleeding, a ten percent increase in inpatient spending was associated with a decrease in mortality within thirty days of 3.1 to 11.3%, depending upon the specific medical condition in question. Only for patients who presented with acute myocardial infarction was there no association of increased inpatient spending and improved outcomes. Thus, the authors concluded, “the amount [of waste] may not be as large as commonly believed, at least for hospitalized Medicare patients.” To be sure, the results might not be as encouraging in non-hospital settings, but Medicare does not cover the cost of nursing home patients who are lingering at death’s door while receiving “custodial care.”In any case, hospital costs represent the single largest component of Medicare’s expenditures— fully twenty-seven percent in the most recent year for which such data are available.

That is not to say that some of Medicare’s expenditures near the end of beneficiaries’ lives provide insufficient benefit to justify their cost. But the tough questions are how to determine those wasteful expenditures in advance and who should make that determination. Such considerations are beyond the scope of this Article,but suffice it to note that end-of-life care discussions are extraordinarily contentious and easily demagogued. After all, former Vice Presidential candidate Sarah Palin effectively scuttled a rather benign effort to include payment for end-of-life counseling in Medicare’s newly provided “annual wellness visit[s]” by contending that such counseling was a first step to rationing health care by “death panels” run by government bureaucrats. Thus, while patients can individually indicate in advance how much treatment they want at the end of their lives, any comprehensive effort to root out Medicare’s wasteful expenditures on “futile care” might face serious political opposition.

In any case, an authoritative analysis published in The New England Journal of Medicine concluded that “the hope of cutting the amount of money spent on life-sustaining interventions for the dying in order to reduce overall health care costs is probably vain.” The authors noted that “there are no reliable ways to identify the patients who will die” and that “it is not possible to say accurately months, weeks, or even days before death which patients will benefit from intensive interventions and which ones will receive ‘wasted’ care.” That leaves age-based rationing of care or more precisely, denial of medical services on the basis of chronological age, as the only easily implemented pathway to eliminate what some might regard as inefficacious expenditures of medical resources. Such age-based rationing of health care is practiced in other national health care systems, even though studies of prognostic models have demonstrated that “age alone is not a good predictor of whether treatment will be success ful.” In any case, polls of Americans have shown little support and significant opposition to the concept. One survey undertaken in late 1989 sought agreement with the following statement: “Lifeextending medical care should be withheld from older patients to save money to help pay for the medical care of younger patients.” Only 5.7% of respondents under age sixty-five strongly agreed with this statement while 38.3% of that group strongly disagreed with it.120 Interestingly, among respondents who were themselves age sixty-five and older, the gap between these opposing viewpoints was narrower: 8.8% strongly agreed with the statement in question while 35.4% strongly disagreed.

Whether results would be substantially different today when the range of medical interventions has increased significantly and when the nation’s budgetary situation has worsened considerably is an open question. Yet, when the 2010 health care reform legislation created an Independent Payment Advisory Board to reduce Medicare’s expenses, the enabling statute was explicit that this Board may not make proposals that would “ration health care.” Clearly, the prospect of eliminating Medicare expenditures that are medically futile will not be an easy task to accomplish.
Kaplan, pp. 19-22

Jensen Comment
My former Unive
rsity of Maine colleague on Medicare was given thirty days to live (because of Stage Four bone cancer) received two new hips but never walked again and died in less than two weeks. I don't think he would've received those two useless and very expensive hips on any of the national plans of Canada or Europe.


Where Did Medicare Go So Wrong?
Medicare is a much larger and much more complicated entitlement burden relative to Social Security by a ratio of about six to one or even more. The Medicare Medical Insurance Fund was established under President Johnson in1965.

Note that Medicare, like Social Security in general, was intended to be insurance funded by workers over their careers. If premiums paid by workers and employers was properly invested and then paid out after workers reached retirement age most of the trillions of unfunded debt would not be precariously threatening the future of the United States. The funds greatly benefit when workers die before retirement because all that was paid in by these workers and their employers are added to the fund benefits paid out to living retirees.

The first huge threat to sustainability arose beginning in 1968 when medical coverage payments payments to surge way above the Medicare premiums collected from workers and employers. Costs of medical care exploded relative to most other living expenses. Worker and employer premiums were not sufficiently increased for rapid growth in health care costs as hospital stays surged from less than $100 per day to over $1,000 per day.

A second threat to the sustainability comes from families no longer concerned about paying up to $25,000 per day to keep dying loved ones hopelessly alive in intensive care units (ICUs) when it is 100% certain that they will not leave those ICUs alive. Families do not make economic choices in such hopeless cases where the government is footing the bill. In other nations these families are not given such choices to hopelessly prolong life at such high costs. I had a close friend in Maine who became a quadriplegic in a high school football game. Four decades later Medicare paid millions of dollars to keep him alive in an ICU unit when there was zero chance he would ever leave that ICU alive.

On November 22, 2009 CBS Sixty Minutes aired a video featuring experts (including physicians) explaining how the single largest drain on the Medicare insurance fund is keeping dying people hopelessly alive who could otherwise be allowed to die quicker and painlessly without artificially prolonging life on ICU machines.
"The Cost of Dying," CBS Sixty Minutes Video, November 22, 2009 ---

What is really sad is the way Republicans are standing in the way of making rational cost-benefit decisions about dying by exploiting the "Kill Granny" political strategy aimed at killing a government option in health care reform.
See the "Kill Granny" strategy at --- www.defendyourhealthcare.us

The third huge threat to the economy commenced in when disabled persons (including newborns) tapped into the Social Security and Medicare insurance funds. Disabled persons should receive monthly benefits and medical coverage in this great land. But Congress should've found a better way to fund disabled persons with something other than the Social Security and Medicare insurance funds. But politics being what it is, Congress slipped this gigantic entitlement through without having to debate and legislate separate funding for disabled persons. And hence we are now at a crossroads where the Social Security and Medicare Insurance Funds are virtually broke for all practical persons.

Most of the problem lies is Congressional failure to sufficiently increase Social Security deductions (for the big hit in monthly payments to disabled persons of all ages) and the accompanying Medicare coverage (to disabled people of all ages). The disability coverage also suffers from widespread fraud.

Other program costs were also added to the Social Security and Medicare insurance funds such as the education costs of children of veterans who are killed in wartime. Once again this is a worthy cause that should be funded. But it should've been separately funded rather than simply added into the Social Security and Medicare insurance funds that had not factored such added costs into premiums collected from workers and employers.

The fourth problem is that most military retirees are afforded full lifetime medical coverage for themselves and their spouses. Although they can use Veterans Administration doctors and hospitals, most of these retirees opted for the underfunded  TRICARE plan the pushed most of the hospital and physician costs onto the Medicare Fund. The VA manages to push most of its disabled veterans onto the Medicare Fund without having paid nearly enough into the fund to cover the disability medical costs. Military personnel do have Medicare deductions from their pay while they are on full-time duty, but those deductions fall way short of the cost of disability and retiree medical coverage.

The fifth threat to sustainability came when actuaries failed to factor in the impact of advances in medicine for extending lives. This coupled with the what became the biggest cost of Medicare, the cost of dying, clobbered the insurance funds. Surpluses in premiums paid by workers and employers disappeared much quicker than expected.

A sixth threat to Medicare especially has been widespread and usually undetected fraud such as providing equipment like motorized wheel chairs to people who really don't need them or charging Medicare for equipment not even delivered. There are also widespread charges for unneeded medical tests or for tests that were never really administered. Medicare became a cash cow for crooks. Many doctors and hospitals overbill Medicare and only a small proportion of the theft is detected and punished.

The seventh threat to sustainability commenced in 2007 when the costly Medicare drug benefit entitlement entitlement was added by President George W. Bush. This was a costly addition, because it added enormous drains on the fund by retired people like me and my wife who did not have the cost of the drug benefits factored into our payments into the Medicare Fund while we were still working. It thus became and unfunded benefit that we're now collecting big time.

In any case we are at a crossroads in the history of funding medical care in the United States that now pays a lot more than any other nation per capita and is getting less per dollar spent than many nations with nationalized health care plans. I'm really not against Obamacare legislation. I'm only against the lies and deceits being thrown about by both sides in the abomination of the current proposed legislation.

Democrats are missing the boat here when they truly have the power, for now at least, in the House and Senate to pass a relatively efficient nationalized health plan. But instead they're giving birth to entitlements legislation that threatens the sustainability of the United States as a nation.

In any case, The New York Times presents a nice history of other events that I left out above ---

"THE HEALTH CARE DEBATE: What Went Wrong? How the Health Care Campaign Collapsed --
A special report.; For Health Care, Times Was A Killer," by Adam Clymer, Robert Pear and Robin Toner, The New York Times, August 29, 1994 --- Click Here

November 22, 2009 reply from Richard.Sansing [Richard.C.Sansing@TUCK.DARTMOUTH.EDU]

The electorate's inability to debate trade-offs in a sensible manner is the biggest problem, in my view. See


Richard Sansing

The New York Times Timeline History of Health Care Reform in the United States ---
Click the arrow button on the right side of the page. The biggest problem with "reform" is that it added entitlements benefits without current funding such that with each reform piece of legislation the burdens upon future generations has hit a point of probably not being sustainable.

Call it the fatal arithmetic of imperial decline. Without radical fiscal reform, it could apply to America next.
Niall Ferguson, "An Empire at Risk:  How Great Powers Fail," Newsweek Magazine Cover Story, November 26, 2009 --- http://www.newsweek.com/id/224694/page/1

. . .

In other words, there is no end in sight to the borrowing binge. Unless entitlements are cut or taxes are raised, there will never be another balanced budget. Let's assume I live another 30 years and follow my grandfathers to the grave at about 75. By 2039, when I shuffle off this mortal coil, the federal debt held by the public will have reached 91 percent of GDP, according to the CBO's extended baseline projections. Nothing to worry about, retort -deficit-loving economists like Paul Krugman.

. . .

Another way of doing this kind of exercise is to calculate the net present value of the unfunded liabilities of the Social Security and Medicare systems. One recent estimate puts them at about $104 trillion, 10 times the stated federal debt.

Continued in article

This is now President Obama's problem with or without new Obamacare entitlements that are a mere drop in the bucket compared to the entitlement obligations that President Obama inherited from every President of the United States since FDR in the 1930s. The problem has been compounded under both Democrat and Republican regimes, both of which have burdened future generations with entitlements not originally of their doing.

Professor Niall Ferguson and David Walker are now warning us that by year 2050 the American Dream will become an American Nightmare in which Americans seek every which way to leave this fallen nation for a BRIC nation offering some hope of a job, health care, education, and the BRIC Dream.

Bob Jensen's threads on health care ---

Bob Jensen's threads on entitlements ---

U.S. National Debt Clock --- http://www.usdebtclock.org/
Also see http://www.brillig.com/debt_clock/

Should we keep increasing the government spending deficit and the national debt every year ad infinitum?

Although in these down economic times, the liberal's Keynesian hero and Nobel Prize economist, Paul Krugman, thinks recovery is stalled because the government is not massively increasing spending deficits. But he's not willing to commit himself to never reducing deficits or never paying down some of the national debt. Hence, he really does not answer the above question ---

So let's turn to a respected law professor who advocates increasing the government spending deficit and the national debt every year ad infinitum?

"Why We Should Never Pay Down the National Debt (even partly)," by Neil H. Buchanan George Washington University Law School), SSRN, 2012 ---

Calls either to balance the federal budget on an annual basis, or to pay down all or part of the national debt, are based on little more than uninformed intuitions that there is something inherently bad about borrowing money. We should not only ignore calls to balance the budget or to pay down the national debt, but we should engage in a responsible plan to increase the national debt each year. Only by issuing debt to lubricate the financial system, and to support the economy’s healthy growth, can we guarantee a prosperous future for current and future citizens of the United States.

Student Assignment

Since many of the most liberal economists are not quite willing to assert that "we should never pay down the national debt," what questionable and unmentioned assumptions have been made by Neil H. Buchanan that need to be addressed?

Are some of these assumptions unrealistic in any world other than a utopian world?

Bob Jensen's Answers ---


Bob Jensen's universal health care messaging --- http://www.trinity.edu/rjensen/Health.htm

Bob Jensen's Tidbits Archives ---

Bob Jensen's Pictures and Stories

Summary of Major Accounting Scandals --- http://en.wikipedia.org/wiki/Accounting_scandals

Bob Jensen's threads on such scandals:

Bob Jensen's threads on audit firm litigation and negligence ---

Current and past editions of my newsletter called Fraud Updates ---

Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm

Rotten to the Core --- http://www.trinity.edu/rjensen/FraudRotten.htm

American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm

Bob Jensen's fraud conclusions ---

Bob Jensen's threads on auditor professionalism and independence are at

Bob Jensen's threads on corporate governance are at


Shielding Against Validity Challenges in Plato's Cave ---

·     With a Rejoinder from the 2010 Senior Editor of The Accounting Review (TAR), Steven J. Kachelmeier

·     With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams

·     With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR

·     With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses

Shielding Against Validity Challenges in Plato's Cave  --- http://www.trinity.edu/rjensen/TheoryTAR.htm
By Bob Jensen

What went wrong in accounting/accountics research?  ---

The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most Accountants ---


Bob Jensen's threads on accounting theory ---

Tom Lehrer on Mathematical Models and Statistics ---

Systemic problems of accountancy (especially the vegetable nutrition paradox) that probably will never be solved ---

Bob Jensen's economic crisis messaging http://www.trinity.edu/rjensen/2008Bailout.htm

Bob Jensen's threads --- http://www.trinity.edu/rjensen/threads.htm

Bob Jensen's Home Page --- http://www.trinity.edu/rjensen/